FICOlogy: Credit Scores and You

Craig Briskin, a consumer and anti-trust class action attorney with Mehri & Scalet, PLLC, wrote this expert’s perspective on FICO exclusively for DailyWorth.

Times are tough for that thing we call money. Jobs are disappearing, credit is drying up, and no one seems to know when things will turn around. Part of the problem is how credit reports and scores are calculated. Now more than ever, it’s important to avoid any blemishes on your record. People with good credit scores not only qualify for credit, they can also get better rate offers on mortgages and car loans.

Our system outsources most credit rating to three major, private credit bureaus, which are known for mixing up the files of people with similar names and Social Security numbers. The U.S. Public Interest Research Groups (PIRG) and Consumers Union found serious errors in 25%of credit reports.

Fair Isaac Corp. developed the FICO (short for Fair Isaac Corp., get it?) score, and claims that it’s based on five major categories of factors – payment history is the most important. But they don’t publicly disclose the remaining factors are or how they’re calculated. FICO scores range from 300 to 850; 720 is the average score, and that’s what you should shoot for.

The Fair Credit Reporting Act (FCRA) gives you the “right” to dispute errors in your credit report, but it’s not nearly as easy as it should be.When you call to challenge a report, the credit bureau and the creditor may do a lousy job of “investigating”— they are known just to check the sparse electronic information in their files, without really looking into whether you really are responsible for a particular report from a creditor.

If you want to raise your score, start by paying your bills on time. Here are few more things you can do to boost your score and keep it high:

Maintain and use several credit cards. To have a credit score, you need to have a credit history. Just don’t use more than 10-20% of your limit.

Request a higher credit limit on a credit card, even if you never plan to use it.

Don’t open multiple accounts at once. It will lower the average time your accounts have been open, which is a factor in your score. If you just received a credit card, try to wait at least six months before applying for another.

Don’t close unused credit card accounts. Cutting up your credit cards may seem like the responsible thing to do, but that’s not how this game works.

If you’re married, make sure joint accounts are listed on your credit report. If the account is in good shape, adding it should help your score.

Disputing inaccuracies in your credit report may be a pain, but it can also pay off. Here are a few pointers:

You want a letter from the creditor, on its official letterhead, instructing the credit reporting agency to make a deletion or correction.

Disputing inaccurate information may help you. Someone checking your credit may ignore your score if they see a report is in dispute.

Make sure your account is listed only once. If it’s listed twice, it will look like you owe double what you really owe.

If you agree to pay off an old debt, make sure the creditor agrees to request its removal from your credit report. Otherwise, that debt will look “current” to anyone checking your credit.

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Amanda Steinberg launched DailyWorth in 2009 to bring a fresh voice and an outsider’s perspective to personal finance.

A successful computer programmer, Amanda was earning six figures, but she had built such an expensive life that even her best attempts at saving and investing were wiped out by life’s unexpected complications.

Frustrated by her inability to build net worth, she launched DailyWorth from an attic office in Philadelphia with a newborn in her arms. Today, DailyWorth’s newsletter reaches more than 1 million subscribers and growing.

In 2015, she started digital investing service, WorthFM, which received front-page coverage in The New York Times Business section

Oprah selected her for the inaugural SuperSoul 100, and Forbes named her one of 21 New American Money Masters. Amanda has also appeared on GMA, Today, CNN, and MSNBC. She’s also the author of Worth It: Your Life, Your Money, Your Termsreleased in February 2017.

Financial planning, budgeting, and goal-setting only work for a small percentage of people. Worth It flips the paradigm on “financial advice” for women and delivers it in fresh, unexpected ways.